Passive Income, Part 2: Applying It in Your Business

In part 1, we looked at the idea of passive income not as a lifestyle, but as a sound business strategy for various stages of your business. Investing time into setting up passive income streams early in your business can provide you stability, cash flow, even growth capital if it goes well. In a mature business, passive income can increase profitability without significant expansion. It can also provide an exit strategy for the founder, allowing you to move out of the day-to-day management of the business.

Passive income concepts can be applied in nearly every business. It may not be your core product or service, but if it’s complementary, you may find it a useful marketing tool, as well as a revenue generator. Here are a few ideas that are applicable to a wide variety of businesses:
Information products – Can you create a book, workbook, white paper, audio program, video, etc., that is not merely a loss leader (i.e., a free give-away), but of compelling enough value for people to actually purchase it? One management consulting firm created a library of over 100 white papers, ranging in price from under $10 to around $200. It generates tens of thousands of dollars for them annually, as well as providing well-qualified leads and educating potential clients before they spend one-on-one time with them.

Affiliate programs – Can you sell your product or service online through affiliates, rather than just your own site? Everyone from the solo e-book author to the largest online retailer does. There’s software available for managing your own affiliate program, or you can sell your products through an established site like Clickbank, or make your program available through an affiliate network, such as Commission Junction or LinkShare.
Drop shipping – Is there a product that already exists that you could sell to your current customers, or promote in online marketplaces, that can be drop-shipped from the supplier?

Auto-ship – Can you develop a consumable product that you can set customers up to automatically receive on a monthly or other regular basis? For these purposes, consider things like books and music consumables – think book-of-the-month club.

Licensing – Sell the rights to your intellectual property to someone else – let them productize and market it. This could be a patent you hold or perhaps training materials. You could even allow them to rebrand and resell your e-book (“private label rights”, or PLR). One innovative web site licensed the custom software that runs their site to another company going after a completely different market.

Subcontracting – In the services industry, this is often the key strategy for moving from being a solo consultant to running a consulting firm. By using subcontractors, rather than referring clients to other solo consultants for work that you either don’t do or can’t do right now, you maintain control of the client relationship and can start to earn money off of other people’s hourly work, not just your own.

Odds are that one or more of these models can be applied in your business – if not to your core offering, to a closely related one. If not, find a passive income model you can do personally, outside your business. It’s easiest to do at the outset of your business, before you’re tied up in the operation of a “going concern”; however, it’s never too late to start. The sooner you do, the sooner you’ll realize the benefits of passive income.